G.R. No.

L-19842      December 26, 1969

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
CENTRAL AZUCARERA DEL DANAO, defendant-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio P. Torres and
Solicitor Jorge B. Coquia for plaintiff-appellee.
Tomas Besa and Conrado E. Medina for defendant-appellant.

BARREDO, J.:

Appeal by Central Azucarera del Danao from the decision of the Court of First Instance of Manila in
its Civil Case No. 38624, Republic of the Philippines vs. Central Azucarera del Danao sentencing
herein appellant as follows:

FOR THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment sentencing:

xxx      xxx      xxx

And the Defendant in Civil Case No. 38624 to pay the plaintiff P48,059.77, with 6% interest
thereon from the date of filing of the complaint to the date of payment.

Defendants' counterclaims in all these four cases are hereby dismissed. (Pp. 25-26, Rec. on
App.)

Actually, there were four cases decided by the trial court in a single decision because they were
consolidated, since they involved identical issues. The three other cases were jointly appealed to
this Court and have already been decided.1

No new issues are raised in this separate appeal. The following facts found by the court a quo in its
joint decision are undisputed:

. . . during the five crop years mentioned in the law, namely, 1951-1952, 1952-1953, 1953-
1954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia Milling Co., Inc., has paid
P267,468.00 but left an unpaid balance of P216,070.50; defendant Ma-ao Sugar Central
Co., Inc., has paid P177,613.44 but left an unpaid balance of P235,800.20; defendant
Talisay-Silay Milling Company has paid P251,812.43 but left an unpaid balance of an
P208,193.74; and defendant Central Azucarera del Danao made a payment of P48,879.73
but left an unpaid balance of P48,059.77. There is no question regarding the correctness of
the amounts paid and the amounts that remain unpaid.

From the evidence presented, on which there is no controversy, it was disclosed that on
September 3, 1951, the Philippine Sugar Institute, known as the PHILSUGIN for short,
acquired the Insular Sugar Refinery for a total consideration of P3,070,909.60 payable, in
accordance with the deed of sale Exhibit A, in 5 installments from the proceeds of the sugar
tax to be collected under Republic Act 632. The evidence further discloses that the operation
of the Insular Sugar Refinery for the years 1954, 1955, 1956 and 1957 was disastrous in the
 sense that PHILSUGIN incurred tremendous losses as shown by an examination of the
statements of income and expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of
Mr. Cenon Flor Cruz, former acting general manager of PHILSUGIN and at present technical
consultant of said entity, presented by the defendants as witness, it has been shown that the
operation of the Insular Refinery has consumed 70% of the thinking time and effort of the
PHILSUGIN management. . . .

The sole issue before Us now is the same as that in the other three cases already decided, which is:

Contending that the purchase of the Insular Sugar Refinery with money from the
Philsugin Fund was not authorized by Rep. Act 632 and that the continued operation
of the said refinery was inimical to their interests, the appellants refused to continue
with their contributions to the said fund. They maintained that their obligation to
contribute or pay to the said Fund subsists only to the limit and extent that they are
benefited by such contributions since Rep. Act 632 is not a revenue measure but an
Act which establishes a "special assessment." Adverting to the finding of the lower court
that proceeds of the said Fund had been used or applied to absorb the "tremendous losses"
incurred by Philsugin in its "disastrous, operation" of the said refinery, the appellants herein
argue that they should not only be released from their obligation to pay the said assessment
but be refunded, besides, of all that they might have previously paid thereunder.

The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar"
authorized to be collected under Sec. 15 of Republic Act 632 is a special assessment. As
such, the proceeds thereof may be devoted only to the specific purpose for which the
assessment was authorized, a special assessment being a levy upon property predicated
on the doctrine that the property against which it is levied derives some special benefit from
the improvement. It is not a tax measure intended to raise revenues for the Government.
Consequently, once it has been determined that no benefit accrues or inures to the
property owners paying the assessment, or that the proceeds from the said
assessment are being misapplied to the prejudice of those against whom it has been
levied, then the authority to insist on the payment of the said assessment ceases.

Accordingly, We reiterate:

The nature of a "special assessment" similar to the case at bar has already been discussed
and explained by this Court in the case of Lutz v. Araneta, 98 Phil. 148. For in this Lutz case,
Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on owners or
persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise —

"a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the assessed
value of such land. (Sec. 3)."

Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder
"shall accrue to a special fund in the Philippine Treasury, to be known as the "Sugar
Adjustment and Stabilization Fund", and shall be paid out only for any or all of the foregoing
purposes or to attain any or all of the following objectives, as may be provided by law." It
then proceeds to enumerate the said purposes, among which are "to place the sugar
industry in a position to maintain itself; ... to readjust the benefits derived from the sugar
industry ... so that all might continue profitably to engage therein; to limit the production of
sugar to areas more economically suited to the production thereof; and to afford laborers
employed in the industry a living wage and to improve their living and working conditions."

The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or
special assessment was unconstitutional because it was being "levied for the aid and
support of the sugar industry exclusively," and therefore, not for a public purpose. In
rejecting the theory advanced by the said plaintiff, this Court said:

"The basic defect in the plaintiff's position in his assumption that the tax provided for
in Commonwealth Act 567 is a pure exercise of the taxing power. Analysis of the Act,
and particularly section 6, will show that the tax is levied with a regulatory purpose, to
provide means for the rehabilitation and stabilization of the threatened sugar
industry. In other words, the Act is primarily an exercise of the police power.

"This Court can take judicial notice of the fact that sugar production is one of the
great industries of our nation, sugar occupying a leading position among its export
products; that it gives employment to thousands of laborers in fields and factories;
that it is a great source of the state's wealth, is one of the important sources of
foreign exchange needed by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. ITS PROMOTION, PROTECTION
AND ADVANCEMENT, THEREFORE REDOUNDS GREATLY TO THE GENERAL
WELFARE. Hence it was competent for the legislature to find that the general
welfare demanded that the sugar industry should be stabilized in turn; and in the
wide field of its police power, the lawmaking body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the
added strain of the increase in taxes that it had to sustain (Sligh v. Kirkwood, 237
U.S 52, 59 L. Ed. 835; Johnson v. State ex rel. Marey, 99 Fla. 1311, 128 So. 853;
Maxcy Inc. v. Mayo, 103 Fla. 552, 139 So. 121).

"As stated in Johnson v. State ex rel. Marey, with reference to the citrus industry in
Florida —

"The protection of a large industry constituting one of the great sources

of the state's wealth and therefore directly or indirectly affecting the
welfare of so great a portion of the population of the State is affected to
such an extent by public interests as to be within the police power of
the sovereign." (128 So. 837).

"Once it is conceded, as it must be that the protection and promotion of the

sugar industry is a matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its protection and
expedient for its promotion. Here, the legislative discretion must be allowed
full play, subject only to the test of reasonableness; and it is not contended that
the means provided in section 6 of the law (above quoted) bear no relation to the
objective pursued or are oppressive in character. If objective and methods are
alike constitutionally valid, no reason is seen why the state may not levy taxes
to raise funds for their prosecution and attainment. Taxation may be made the
implement of the state's police power. (Great Atl. & Pac. Tea Co. v. Grosjean, 301
U.S. 412, 81 L. ed. 1193; U. S. v. Butler, 297 U. S. 1, 80 L. ed. 477; M'cullock v.
Maryland, 4 Wheat, 316, 4 L. ed 579)."
 On the authority of the above case, then, WE HOLD THAT THE SPECIAL
ASSESSMENT AT BAR MAY BE CONSIDERED SIMILARLY AS THE ABOVE,
THAT IS, THAT THE LEVY FOR THE PHILSUGIN FUND IS NOT SO MUCH
AN EXERCISE OF THE POWER OF TAXATION, NOR THE IMPOSITION OF A
SPECIAL ASSESSMENT, BUT THE EXERCISE OF THE POLICE POWER
FOR THE GENERAL WELFARE OF THE ENTIRE COUNTRY. IT IS,
THEREFORE, AN EXERCISE OF A SOVEREIGN POWER WHICH NO
PRIVATE CITIZEN MAY LAWFULLY RESIST.

Besides, under Section 2 (a) of the charter, the Philsugin is authorized "to conduct research
work for the sugar industry in all its phases, either agricultural or industrial, for the purpose of
introducing into the sugar industry such practices or processes that will reduce the cost of
production, . . ., and achieve greater efficiency in the industry." This provision, first of all,
more than justifies the acquisition of the refinery in question. Who can dispute that the
operation of a sugar refinery is a phase of sugar production and that from such operation
may be learned methods of reducing the cost of sugar manufacture no less than it may
afford the opportunity to discover the more effective means of achieving progress in the
industry? Philsugin's experience alone of running a refinery is a gain to the entire industry.
That the operation resulted in a financial loss is by no means an index that the industry did
not profit therefrom, as other gains of a different nature may have been realized. Thus, from
its financially unsuccessful venture, the Philsugin could very well have advanced in its
appreciation of the problems of management faced by sugar centrals. It could have
understood more clearly the difficulties of marketing sugar products. It could have known
with better intimacy the precise area of the industry in need of the most help from the
government. The view of the appellants herein, therefore, that they were not benefitted by
the unsuccessful operation of the refinery in question is not entirely accurate.

Furthermore, Section 2 (a) specifies a field of research which, indeed, would be difficult to
carry out save through the actual operation of a refinery. Quite obviously, the most practical
or realistic approach to the problem of what "practices or processes" might most effectively
cut the cost of production is to experiment on production itself. And yet, how can such an
experiment be carried out without the tools, which is all that a refinery is?

Moreover, even if it were assumed that the acquisition of a refinery is not contemplated in Rep. Act
632 as within the objectives and powers of the Philsugin, there is no denying the fact that not all the
money in the Sugar Research and Stabilization Fund created by the law from the levy on the
appellant and the other sugar centrals and planters is involved in such purchase. Indisputably, the
Philsugin is using the rest of the said fund for purposes which cannot be questioned. Such being the
case, the obligation of appellant to pay the tax in question is clear. The idea of proportioning the
amount it will pay according to its own computation of how much of the above Fund is being devoted
to what it deems to be legitimate ends only cannot be sanctioned, if for no other reason than that
such a manner of payment will unduly hamper the proper programming and budgeting of the said
Fund by the Philsugin even for its unquestionably authorized projects, thereby reducing its efficacy
and defeating the purpose for which it has been established. The remedy that suggests itself the
moment Philsugin indulges in unauthorized ventures or projects is to raise the illegality thereof in
appropriate proceedings, either administrative or judicial, so that the same may be enjoined or
annulled and those responsible therefor may be properly called to account, but, certainly, not by
refusing to pay the levy fixed by law.

As in the three other cases already referred to, the judgment of the trial court in this case is affirmed,
with costs against appellant.
Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Castro and Teehankee, JJ., concur.

Makalintal and Fernando, JJ., took no part.